Starting a business is exciting, but deciding how to structure it can feel like a completely different story. If you’re planning to start or grow a business in the UK, you’ve probably come across the term limited company.
A limited company can give your business its own legal identity and may offer useful advantages as your business grows. But registering a company is only the beginning. You’ll also have ongoing responsibilities involving tax, accounting and Companies House.
So, how do you actually set one up?
Let’s break it down into simple steps.
What Is a Limited Company?
A limited company is legally separate from the people who own it.
The company can make contracts, own assets, earn income and owe money in its own name. The owners are known as shareholders, while the people responsible for running the company are directors.
One of the main benefits is limited liability. In most circumstances, shareholders’ personal liability is limited to the amount they’ve invested or agreed to contribute.
However, limited liability doesn’t mean directors can ignore their responsibilities. Directors still have legal duties and must make sure the company is managed properly.
Is a Limited Company Right for You?
Before registering, ask yourself whether a limited company actually suits your business.
A sole trader structure can be simpler for some businesses, while a limited company may be more suitable if you’re planning to grow, work with larger clients or build a separate business identity.
You might consider a limited company if you:
- Want a separate legal structure for your business
- Plan to employ people
- Are starting a business with partners
- Expect the business to grow
- Want to retain some profits in the company
- Prefer to separate personal and business finances
There’s no single structure that’s right for everyone, so consider your circumstances before making the decision.
Step 1: Choose Your Company Name
Your company name is often the first thing customers will see, so don’t choose it in a hurry.
You’ll need to make sure the name follows Companies House rules and isn’t the same as, or too similar to, an existing registered company name.
Before deciding, check:
- Companies House
- Trade mark databases
- Domain availability
- Social media usernames
Think about the future too. A name that works for a small business today should ideally still make sense if you expand your services later.
Step 2: Choose Your Directors and Shareholders
A private limited company needs at least one director and one shareholder.
The same person can be both.
If you’re setting up on your own, you may simply become the company’s sole director and shareholder. If you’re starting with business partners, you’ll need to agree on ownership and responsibilities.
For example, two founders might decide to split 100 ordinary shares between them.
Don’t treat this decision as a formality. Ownership can affect how profits, voting rights and important decisions are handled later.
Step 3: Choose a Registered Office Address
Every limited company needs a registered office address.
This is the official address where Companies House and other official correspondence can be sent.
You can potentially use your home address, but remember that the registered office address is publicly available.
If you prefer not to publish your home address, an appropriate registered office service may be an option.
Step 4: Choose Your SIC Code
When you register your company, you’ll need to select a SIC code.
SIC stands for Standard Industrial Classification and describes the type of business activity your company carries out.
For example, a software company and a construction company would generally have different SIC codes.
Choose the code that best matches your company’s main activities.
Step 5: Prepare Your Company Information
Before registering, have the key details ready.
These generally include:
- Company name
- Registered office address
- Director details
- Shareholder details
- Share structure
- PSC information
- SIC code
- Articles of association
You’ll also need a memorandum of association as part of the incorporation process.
For a straightforward company, standard model articles may be appropriate. More complicated ownership structures may require professional advice.
Step 6: Register With Companies House
Once everything is ready, you can apply to register your company with Companies House.
You’ll provide the required information and pay the incorporation fee.
If the application is accepted, you’ll receive a certificate of incorporation, confirming that your company legally exists.
As of 2026, the standard online incorporation fee is £100.
Remember that other fees may apply depending on how you register or if you need additional filings.
Step 7: Open a Business Bank Account
Once your company is incorporated, keeping business and personal finances separate is important.
A dedicated business account makes it easier to track:
- Sales
- Business expenses
- Supplier payments
- Tax liabilities
- Cash flow
One common mistake new company owners make is treating the company bank account like a personal wallet.
Even though you own the company, company money isn’t automatically your personal money. Payments to you need to be recorded and treated correctly.
Step 8: Understand Corporation Tax
A limited company generally pays Corporation Tax on its taxable profits.
For the financial year beginning 1 April 2026, the small profits rate is 19% for companies with profits of £50,000 or less, subject to the relevant rules. The main Corporation Tax rate is 25%, with Marginal Relief potentially available for companies with profits between £50,000 and £250,000.
Your actual tax position can depend on your company’s circumstances, so don’t assume the rate simply depends on turnover.
Step 9: Check VAT Registration
Forming a limited company doesn’t automatically mean you need to register for VAT.
The current VAT registration threshold is £90,000 of taxable turnover, subject to the relevant rules.
You can also choose to register voluntarily if your turnover is below the threshold.
Whether voluntary registration makes sense depends on factors such as your customers, expenses and type of business.
Step 10: Keep Proper Records
Good bookkeeping might not be the most exciting part of running a business, but it can save you plenty of headaches.
Keep records of:
- Sales and invoices
- Business expenses
- Receipts
- Bank transactions
- Payroll
- VAT records, where applicable
- Dividends
- Money taken from or paid into the company
Don’t wait until year-end to organise everything.
A few minutes spent keeping records up to date can be much easier than trying to reconstruct an entire year’s transactions later.
Step 11: Understand Your Ongoing Responsibilities
Setting up the company is only the beginning.
You’ll need to stay on top of ongoing requirements, which may include:
- Annual accounts
- Confirmation statement
- Corporation Tax Return
- VAT Returns, if registered
- Payroll reporting, if applicable
- Updating Companies House when company details change
A confirmation statement is used to confirm that the information Companies House holds about your company is correct.
Put important deadlines in your calendar and don’t rely on memory.
Common Mistakes to Avoid
New company owners often make simple mistakes that are easy to prevent.
Mixing personal and business spending: Keep company transactions separate.
Ignoring bookkeeping: Don’t leave months of records until the last minute.
Forgetting deadlines: Companies House and HMRC have different filing requirements.
Taking money without recording it: Salary, dividends, expenses and director’s loan transactions can have different treatments.
Choosing the wrong company structure: Think about your future plans before registering.
Frequently Asked Questions (FAQs)
1. How much does it cost to set up a limited company in the UK?
The standard online Companies House incorporation fee is currently £100 in 2026. Additional costs may apply for professional services or other filings.
2. Can one person set up a limited company?
Yes. A private limited company can generally have one director and one shareholder, and the same person can hold both roles.
3. Do I need an accountant to set up a limited company?
No. You can register a straightforward company yourself. However, professional advice can be useful for tax planning, share structures and ongoing compliance.
4. What is a SIC code?
A SIC code identifies the type of business activity your company carries out and is required when registering with Companies House.
5. Do all limited companies need to register for VAT?
No. VAT registration is generally compulsory when taxable turnover exceeds £90,000, although voluntary registration is possible below the threshold.
Final Thoughts
Setting up a limited company in the UK doesn’t have to be complicated. Once you understand the basic steps, the process becomes much easier.
The important thing is to remember that company formation is not the finish line—it’s the starting point.
After incorporation, you’ll need to manage your records, understand your tax responsibilities and keep up with Companies House requirements.
If you’re unsure about the best structure or how to deal with tax and accounting responsibilities, getting professional tax advice early can help you avoid expensive mistakes later.